Q&A: What if Our Minister Requests a Housing Allowance that Exceeds His Total Salary?

A church can only allocate the total amount of its minister’s yearly salary toward a housing allowance.

Q: We just hired a pastor, and he is purchasing a new home with a very large down payment. This will make the cost of his housing higher than his salary. How do we handle that?

A church should only allocate an allowance up to the minister’s yearly salary. This presumes the minister qualifies for an allowance based on IRS requirements.

Also, the anticipated housing costs represent compensation for ministerial services and go exclusively toward paying housing expenses, and reflect fair rental value of the home (furnished, plus utilities).

If a minister’s housing expenses are higher than that, it’s up to him or her to earn the difference elsewhere.

As a companion to this Q&A, consider picking up a copy of Church Law & Tax’s “Church Compensation: From Strategic Plan to Compliance.”

If a minister does so, your church cannot designate more money for the housing allowance under the presumption that your minister will earn income from other jobs to make up the difference.

Let’s say your minister earns $15,000 a year with your church, and he anticipates housing expenses of $17,500 for 2017.

He cannot earn an additional $2,500 from working 10 hours a week at a coffee shop and have your church designate his housing allowance as $17,500.

And those additional funds will be taxed like any other payroll because those earnings are not affiliated with his ministerial work at the church.

Vonna Laue has worked with ministries and churches for more than 20 years. Vonna was a partner with a national CPA firm serving not-for-profit entities through audit, review, tax, and advisory services. Most recently, she held the role of executive vice president for a Christian ministry that works to enhance trust in the church and ministry community.

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